The trade conflicts as the largest headwind hindering recovery
TIER composite indicators signal a likely ending of growing binge

The Taiwanese Economy in September 2018

The US economy is still among all the strongest with promising
purchasing managers' indicators and sharply increased leading index.
However, the escalated trade conflicts or ongoing tariff war between
the US and China could still be the biggest uncertainty hindering
the world economy. Worried about the potential impacts caused by
said uncertainty, all three composite indicators issued by the Taiwan
Institute of Economic Research (TIER) signal slowing growth in the
near future.
Taiwan's exports in September 2018 increased by 2.61% compared with
the same month of 2017. Regarding imports, Taiwan's imports in September
2018 increased by 13.89% compared with imports in August 2017. Exports
and imports grew by 8.07% and 11.90% y-o-y respectively from January
1st till the end of September this year, Taiwan's exports and imports
gave a trade surplus of US$ 36.69 billion or a decrease by 9.86%
on a y-o-y basis for the first 9 months of this year.
Taiwan's consumer price index (CPI) grew by 1.72% in September 2018
compared with the same month of previous year. The core inflation
rate excluding prices of the energy and food grew by 1.20% in September,
2018. In addition, the wholesale price index (WPI) moved up by 6.55%
in September 2018 on the year-on-year basis. On the cumulative basis,
the CPI went up by 1.66% and WPI went up by 3.85% from January 1st
till September 30th 2018 compared with the same period last year.
As for exchange rate, the NTD went weaker due to the relatively
stronger USD, as the Fed is likely to continue its rate hiking cycle
and capital continued to flow out. Anyway, the NTD/USD stood at
30.55 in late September 2018 indicating a 0.59% depreciation. Regarding
the interest rate, it remained low and steady in September 2018
due to the continued loose monetary operations by the CBC with respect
to the most recent CPI reading and potential global uncertainties;
the lowest and highest over-night call rate in September 2018 stood
at 0.173% and 0.187% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were
better than expected in the target month was 11.6% or decreased
by 10.5 percentage points compared with respondents who perceiving
better business in the previous month. The portion of those perceived
business were getting worse in the target month was 42.1% or increased
by 20 percentage points than 22.1% perceiving worse business of
the previous month. The portion of manufacturing firms who perceived
business remained constant in the target month was 46.3% or decreased
by 9.5 percentage points compared with 55.8% perceiving constant
business in the previous month. Overall, manufacturing firms perceived
the business in the target month was rather pessimistic.
In addition, the portion of manufacturers who perceived business
would be better in the next six months was 15.7% in the target month
or increased by 0.7 percentage points than 15.0% feeling more optimistic
about the future in the previous month. The portion of firms who
perceived the economic outlook would be worsening was 32.0% or increased
by 5.9 percentage points compared with 26.1% feeling rather pessimistic
about the future in the previous month. The portion of manufacturing
firms who perceived business remained constant in the next six months
stood at 52.3% or decreased by 6.6 percentage points compared with
58.9% feeling neutral about the business outlook one month earlier.
Overall, manufacturing firms perceived the business in the near
future was also somewhat pessimistic.
The manufacturing composite indicator for September, 2018 adjusted
for seasonal factors on moving average, saw a downward correction,
and from a revision of as 98.25 points in August moved down to 93.76
points in September. Figure 1 shows a decrease of 4.49 points, the
second month of consecutive decline.
The TIER service sector composite indicator for September, 2018
adjusted for seasonal factors on moving average, also saw a downward
correlation, and from a revision of as 98.0 points in August moved
down to 95.62 points in September. Figure 1 shows a decrease of
2.38 points, also the second month of consecutive decline.
In addition, the TIER Construction Sector Composite Indicator for
September, 2018 adjusted for seasonal factors on moving average,
also saw a downward correction, and from a revision of 99.28 points
in August went down to 96.53 points in September. Figure 1 shows
a decrease of 2.75 points, the first decline after a three-month
consecutive mount.

Forecast on Individual Industries

Following are manufacturers' sentiments that are industry-specific
in the monthly TIER surveys:

● Manufacturers' sentiments that have been in decline in the September
survey and are expected to deteriorate over the next six months
include:
Industrial Chemicals, Plastics and Rubber Raw Materials, Plastic
Products Manufacturing, Electrical Appliances and Housewares Manufacturing,
Motorcycles Manufacturing, Securities.

● Manufacturers' sentiments that have been in decline in the September
survey, but are expected to improve over the next six months include:
Insurance.

● Manufacturers' sentiments that have been in decline in the September
survey and are expected to remain sluggish over the next six months
include:
Slaughtering, Soft Drink Manufacturing , Paper Manufacturing, Porcelain
and Ceramic Products Manufacturing, Glass and Glass Products Manufacturing,
Metal Structure and Architectural Components Manufacturing, Electrical
Machinery, Electric Wires and Cables Manufacturing, Communications
Equipment and Apparatus Manufacturing, Bicycles Parts Manufacturing,
Restaurants and Hotels.

● Manufacturers surveyed who felt the September outlook was the
same as the previous month, but the outlook is expected to exacerbate
over the next six months include:
Yarn Spinning Mills, Transport Equipment Manufacturing and Repairing,
Motor Parts Manufacturing, Motorcycles Parts Manufacturing.

● Manufacturers surveyed who felt the September outlook was the
same as the previous month, but the outlook is expected to improve
over the next six months include:
Leather, Fur and Allied Product Manufacturing, Wood and Bamboo Products
Manufacturing, Non-metallic Mineral Products Manufacturing, Cement
and Cement Products Manufacturing, Precision Instruments Manufacturing,
Education and Entertainment Articles Manufacturing, Transportation
and Storage.